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Original Beneficial Ownership

 

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Original Beneficial Ownership of Policies

 

The IGS Procedure and Documentation together obtain CGT exemptions that might not otherwise be available.

However, if the Procedure is not followed, there is a risk of a CGT liability at the time of a claim.

The IGS Documentation Procedure is designed to ensure that the "Original Beneficial Ownership" of the Cover for Capital Gains Tax purposes has been established from the moment of application for the Cover.

The Procedure and Fee Policy is designed to minimise the risk that Advisers or Clients will take shortcuts that have serious CGT implications at the time of a claim.

The CGT issues are explained in more detail below.

 

Relevance of "Original Beneficial Ownership" of Policies

The tax treatment of the Insurance Proceeds at the time of a claim depends on the "Original Beneficial Ownership" of the Policy at the time of application for, and issue of, the Policy.

Under a Business Insurance Trust Agreement, the Policy Owner is not the Beneficial Owner of the Policy.

A major function of the Agreement is to identify the correct "Original Beneficial Owner" of the Policy for tax purposes.

If this function is performed in accordance with the IGS Documentation Procedure, there will be no inadvertent Capital Gains Tax liability with respect to the Insurance Proceeds.

 

Documentation Procedure

The Documentation Procedure is designed to establish the appropriate "Original Beneficial Ownership" of the Policies from the date of application for the Cover.

The draft Agreement will usually be prepared at or about the time that the Cover is applied for.

Any delay in the instructions to prepare the draft Trust Agreement can result in the wrong parties acquiring a "beneficial interest" in the Policies.

This could result in CGT being paid on the Insurance Proceeds at the time of a subsequent claim.

The Reduced Fee recognises that, if the Documentation procedure is not followed, there may be additional Fees with respect to advice and documentation necessary to avoid the CGT liability.

 

Self-Ownership Without A Contemporaneous Agreement

Please click here to read about the potential adverse CGT implications of not having a contemporaneous Buy/Sell Agreement.

Adviser's Responsibility

In effect, the Adviser should ensure that a Buy/Sell Agreement is prepared during the underwriting process and signed as soon as possible after the Policies are issued.

 

Proposal of Policies without Documentation of the Trust

In some cases, the Adviser or Business might wish to apply for the cover before payment for the Business Insurance Trust Agreement.

This might occur where:

  • the Proposals are signed by the Lives Insured on the basis that the Policies will subsequently be assigned to the Trustee;

  • the Proposals are completed on-line before the documentation of the Trust; or

  • the Proposals are posted to the Insurer before the documentation of the Trust.

Risk of Conflicting Beneficial Interests

In these cases, the proposed Recipients of the Insurance Proceeds may acquire equitable (or beneficial) interests in the Policies and the Proceeds.

These interests will undermine the Original Beneficial Ownership of each Policy by the Life Insured that ensures that both Self-Ownership and Trust Ownership will qualify for all available CGT exemptions.

This practice complicates the tax situation with respect to the Insurance Proceeds and requires additional documentation and advice (see below).

As a result, the Concessional Fee is not available in these cases.

 

Original Beneficial Ownership Agreement

While IGS discourages this practice, the negative tax implications can usually be avoided by the execution of an Original Beneficial Ownership Agreement by all of the Lives Insured before the Adviser or Business sends the Proposals to the Insurers.

This Agreement provides that only the Life Insured will be treated as the Original Beneficial Owner of the Policy and no other proposed Recipients of any of the Insurance Proceeds will have any interest in the Policy or the Proceeds.

Only subsequently (when the Policies are assigned to the Trustee and the Business Insurance Trust Agreement is executed) will there be a legal and commercial framework for the tax-effective payment of the Proceeds to the proposed Recipients.

 

Legal Fee for Original Beneficial Ownership Agreement

The standard Fee for an Original Beneficial Ownership Agreement is $990.

This Fee must be paid before the Proposals are sent to the Insurers, so that the Agreement can be prepared and signed before the Proposals.

The Fee will be credited against the Standard Legal Fee for the Business Insurance Trust Agreement if the Business proceeds.

It is additional to the Concessional Fee.

 

Assignment of Policies to Trustee

If the standard Procedure is not adopted, the Adviser and the Business will be responsible for processing the assignment of the Policies from the Lives Insured to the Trustee when the Agreement is executed by the Trustee.

In some cases, it might be necessary to cancel and re-issue the Policies.

 

Change of Fee Policy

IGS reserves the right to change the Fee Structure from time to time.

Any change will not affect any Fixed Fee quotation for the preparation of an Agreement that has been accepted and paid in accordance with the quotation.

Copyright: Ian Gray Solicitor

 

 

Adviser Tip

The standard Fee allows for up to two (2) hours’ consultation with the Adviser or Client with respect to the Client’s needs and the completion of the Questionnaire.

See more Adviser Tips

 

 

 

Current Marketing Schedule

Current Marketing Schedule

Ian Gray travels to most capital cities regularly throughout the year and is available for Meetings.

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